Interest only

andynxn

Hi guys,

I am looking at remortgaging my house and considering going the interest only route. My reason for thinking this is in 2 years time i am 90% certain i will be selling up and getting a joint mortgage with my partner (she in uni at moment). Is this a good move in my situation?
I intend to leave most of the equity in the house to use as a desposite in two years for a bigger house.

Cheers
Andy

Robert_Sterling

What is your reason for changing to interest only?

UK007BullDog

OK, but what happens if the house prices do not rise? You would only have 10% equity, as going interest only you would not be paying off part of the loan and so not increasing your stake in the property.

You would be losing two years of repayment which means you pay more interest. Interest Only mortgages are more expensive than repayment mortgages, as you pay interest on the loan borrowed. If the loan amount does not reduce you pay more interest. And if interest rates keep going up you will pay even more interest in the future.

Only go interest only if you are in tight cash flow. Otherwise keep it as it is.

andynxn

Im currently with Northan Rock for the mortgage, and since finishing my fixed two years the price has gone up every month. Im currently on repayment, but since taking out the mortgage i have only paid off about £2k. So my thought was to take out an interest only now, save the extra i should be paying and if my calcs are right it will be about £4k in savings at the end, which i can then use together with money in the house value.
With the rate recently rising again its just getting stupid to sit back and keep paying the increase. Moving to interest only will reduce my payments by £160 a month. Ok my mortgage value will still be the same in 2 years but if i am planning to move and then get a joint mortgage this wont matter to much??

Andy

Rick62

Why do people on MSE seem to think that paying interest only is a good way to save money? This ludicrous idea keeps coming up.

Andy, a repayment mortgage is one of the best, most tax efficient, ways to 'save' money. If you want to save money for your move in a couple of years then stay on repayment if you can, shorten the term even to save more.

herbiesjp

Indeed by sticking with a repayment mortgage you will be reducing your mortgage amount, and if house prices stay the same, you will be increasing the equity in your property. So when you come to sell, you will have more money coming back to you out of the sale proceeds